What Is Consignment? Definition, Examples, and How It Works [2025 Guide]

Key Takeaways

1. Consignment is when owners place goods with retailers to sell, sharing profits while minimizing upfront costs.
2. It benefits artisans, small businesses, and retailers by expanding market reach and offering unique inventory.
3. Works well for unique, high‑quality goods like designer clothing, artworks, furniture, and collectibles.
4. It reduces risk and overhead but may limit pricing control and involves splitting profits and managing unsold inventory.

In the 21st century, innovative business models continuously reshape the way goods are bought and sold. One such model that has gained prominence is consignment. This trend is driven by the millennial generation, known for their frugal shopping habits, preferring bargains from thrift and consignment shops over high-end stores and designer boutiques. Offering a blend of convenience, flexibility, and opportunity, consignment provides an alternative avenue for individuals and retailers to engage in trade without the constraints of traditional retail structures. This comprehensive guide discusses the meaning of this business arrangement, how it works, its pros and cons, and provides illustrative examples.

What Is Consignment?

“What is consignment?” and “How does consignment work?” are common questions that arise when discussing this legal business arrangement. In essence, consignment involves entrusting goods to a retailer for sale on behalf of the owner. When a sale occurs, the retailer deducts a predetermined percentage, known as a commission, from the sale price, remitting the remaining amount to the owner. This arrangement offers mutual benefits: the owner gains access to a broader market without requiring their own retail space, while the retailer expands their inventory without investing in inventory upfront.

Who Uses Consignment Business Model?

This business model attracts a diverse range of participants, including individuals and businesses across various industries. For individual artists and artisans, it offers an opportunity to showcase their creations or collections to a wider audience. Similarly, entrepreneurs and small businesses, whether operating traditional brick-and-mortar stores or online platforms, leverage the consignment model to diversify their product offerings and attract customers with unique merchandise. From local boutiques curating handmade goods to large-scale consignment platforms specializing in luxury items, this business arrangement accommodates a broad spectrum of sellers and retailers seeking mutually beneficial partnerships in the realm of commerce.

However, for small businesses engaging in consignment sales, enhancing marketing efforts is crucial. By defining targeted strategies and leveraging consignment partnerships effectively, small businesses can reach new customers while incorporating tips for small business marketing and learning how to write a good business plan.

What Items Sell Best on Consignment?

High-quality, unique, and specialized items tend to perform exceptionally well in consignment settings. Clothing and accessories, particularly designer or vintage pieces, are popular choices among consignment shoppers looking for unique fashion finds at discounted prices. Artwork, including paintings, sculptures, and decorative pieces, also garners interest from buyers seeking to enhance their living spaces with original or limited-edition works. Furniture, ranging from antique to contemporary styles, is another category that attracts consignment shoppers who appreciate the opportunity to acquire quality pieces at a fraction of retail prices. Additionally, collectibles such as coins, stamps, sports memorabilia, and rare toys appeal to hobbyists and enthusiasts searching for unique additions to their collections.

How Consignment Shops Work

During consignment, the products remain the property of the owner until they are sold. A consignment store acts as an intermediary, showcasing and promoting the items on behalf of the owner. The percentage taken by consignment shops varies based on the agreement between the owner (consignor) and the shop (consignee).

A common consignment deal involves a revenue split arrangement such as 50/50, 40/60, or 60/40, where the consignor receives the specified percentage of the final sale price. Additionally, consignors typically establish a deadline for the consignee to return any unsold goods. As long as the consignee meets this deadline, they are not obligated to pay for the unsold items.

Pros and Cons of Consignment

The features of this business arrangement mean that both parties benefit from reduced risk and increased access to diverse inventory, fostering a mutually advantageous relationship between sellers and retailers. However, it’s essential to weigh the pros and cons before committing to consignment selling. For consignors, the appeal lies in the elimination of brick-and-mortar costs, reduced inventory management, and increased market reach. However, they may face lower profit margins due to revenue splitting and must contend with unsold inventory responsibilities.

Consignees, on the other hand, enjoy reduced upfront costs, a broader product range, and revenue opportunities. Yet, they may encounter challenges such as dependency on consignors for new products, inventory management complexities, and the obligation to return unsold inventory promptly.

Some Examples of Consignment Businesses

Consider the following scenarios:

Is the Consignment Sales Acceptable to Your Business?

Given the comprehensive definition and understanding of consignment sales presented earlier, evaluating whether this model fits your business necessitates thorough deliberation. The consignment approach presents several solid advantages, including reduced risk for both sellers and retailers, access to a broader customer base, and the potential for higher returns. However, it also comes with its own set of challenges, such as limited control over pricing and potential disagreements over terms. To decide if the discussed model is acceptable for your business, it’s crucial to evaluate your objectives, resources, and target market thoroughly.